“Tallgrass Energy again outperformed our expectations and guidance for 2016, largely driven by strong asset performance and the acquisitions of interests in the Pony Express and Rockies Express pipelines,” said Tallgrass Energy President and CEO David G. Dehaemers Jr. “We steadily managed TEP through a volatile energy market in 2016, and delivered outstanding distribution growth of approximately 27 percent for TEP and 60 percent for TEGP while maintaining low leverage and healthy excess distribution coverage.”

“We believe Tallgrass is well positioned for another strong year in 2017 due to our stable cash flows, the recent acquisition of Tallgrass Terminals and the operator of REX as well as a potential dropdown of an interest in REX from Tallgrass Development.”

Fourth Quarter Distributions

Tallgrass Energy Partners, LP

As previously announced, the board of directors of TEP’s general partner declared a quarterly cash distribution of $0.8150 per common unit for the fourth quarter of 2016. This quarterly distribution represents $3.26 on an annualized basis, a sequential increase of 2.5 percent from the third quarter 2016 distribution and an increase of 27.3 percent from the fourth quarter 2015 distribution. The quarterly distribution was paid on Tuesday, February 14, 2017, to unitholders of record as of the close of business on Friday, February 3, 2017.

Tallgrass Energy GP, LP

Also, as previously announced, the board of directors of TEGP’s general partner declared a quarterly cash distribution of $0.2775 per Class A share for the fourth quarter of 2016. This quarterly distribution represents $1.11 per Class A share on an annualized basis, a sequential increase of 5.7 percent from the third quarter 2016 distribution and an increase of 60.4 percent from the fourth quarter 2015 distribution. The quarterly distribution was paid on Tuesday, February 14, 2017, to Class A shareholders of record as of the close of business on Friday, February 3, 2017.

Tallgrass Energy Partners, LP, Summary Financial Information(1)

Three Months Ended
December 31,

Year Ended

December 31,

(in thousands, except coverage and per unit data)

2016

2015

2016

2015

Net income attributable to partners

$

66,677

$

40,649

$

263,529

$

160,546

Add:

Interest expense(2)

13,049

4,312

40,688

15,517

Depreciation and amortization expense(2)

21,062

17,868

85,971

75,529

Distributions from unconsolidated investment

24,440

—

75,900

—

Non-cash loss related to derivative instruments(2)

6,938

218

1,547

—

Non-cash compensation expense (3)

1,510

1,115

5,780

5,103

Non-cash loss from disposal of assets

—

312

1,849

4,795

Loss on extinguishment of debt

—

226

—

226

Less:

Equity in earnings of unconsolidated investment

(16,393

)

—

(51,780

)

—

Non-cash loss allocated to noncontrolling interest

—

—

—

(9,377

)

Adjusted EBITDA

$

117,283

$

64,700

$

423,484

$

252,339

Add:

Deficiency payments received, net

8,604

4,461

33,496

16,511

Less:

Cash interest cost

(11,927

)

(3,715

)

(37,110

)

(13,746

)

Maintenance capital expenditures, net

(4,238

)

(2,886

)

(11,323

)

(12,123

)

Distributions to noncontrolling interest in excess of earnings

—

38

—

(22,479

)

Distributable Cash Flow

109,722

62,598

408,547

220,502

Less:

Distributions

(88,159

)

(59,040

)

(321,953

)

(192,580

)

Amounts in excess of distributions(4)

$

21,563

$

3,558

$

86,594

$

27,922

Distribution coverage(4)

1.24

x

1.06

x

1.27

x

1.14

x

Pro Forma Distribution coverage, excluding $5,625,000 paid in February 2016 as a result of units issued in January 2016

1.17

x

1.18

x

Common units outstanding(5)

72,139

67,162

72,139

67,162

Distribution per common unit

$

0.8150

$

0.6400

$

3.0700

$

2.3400

(1)

The acquisitions of an additional 33.3 percent and 31.3 percent membership interest in Tallgrass Pony Express Pipeline, LLC (“Pony Express”) effective March 1, 2015, and January 1, 2016, respectively, are presented prospectively from the dates of acquisition, and as a result, financial information for periods prior to March 1, 2015, and January 1, 2016, have not been recast to reflect the additional 33.3 percent and 31.3 percent membership interests.

Cumulative distribution coverage from TEP’s IPO in May 2013 through December 31, 2016, is $132.4 million and the cumulative distribution coverage ratio is 1.21x.

(5)

Common units represent the number of units as of the date of record for the fourth quarter distributions in both 2016 and 2015.

TEP Exercise of Remaining Call Option Units and Repurchase of Additional Units from Tallgrass Development

On February 1, 2017, TEP exercised the remainder of the call option granted by Tallgrass Development, LP (“TDev”), covering 1,703,094 common units for a cash payment of $72.4 million, and TEP repurchased 736,262 common units from TDev for a negotiated cash payment of approximately $35.3 million, which repurchase was approved by the conflicts committee of the board of directors of TEP’s general partner. These 2,439,356 common units in the aggregate equal the number of common units TEP sold under its at-the-market equity program since November 3, 2016 and were deemed canceled and no longer issued and outstanding as of such transaction date.

In its entirety, the call option provided TEP approximately $31 million in net proceeds and effectively reduced the purchase price for the 31.3 percent interest in Pony Express that TEP purchased effective January 1, 2016, from $743.6 million to $712.6 million. The lower purchase price translates to a transaction multiple of approximately 8.7x as compared to the original and previously reported transaction multiple of approximately 9.0x.

For 2017, TEGP expects its cash distributions to Class A shareholders to grow by more than 30 percent and potentially in excess of 40 percent. Any cash flow received by Tallgrass Equity that is not distributed to its members, including TEGP, would likely be used to reduce the borrowings on Tallgrass Equity’s revolving line of credit. As of February 15, 2017, the outstanding borrowings on the line of credit are $146 million.

Conference Call

Please join Tallgrass Energy for a conference call and webcast to discuss fourth quarter 2016 results at 3:30 p.m. Central Time on Wednesday, February 15, 2017. Interested parties may listen via a link posted on the Investor Relations section of our website and the replay will be available on our website for at least seven days following the live call.

Tallgrass Energy Partners, LP Alternative Reconciliations

Adjusted EBITDA and/or Distributable Cash Flow, as defined in “Non-GAAP Measures” below, may be impacted by the timing of cash payments received as a result of shipper deficiency payments received or utilized during the period or incremental barrels shipped during the period. As such, we have also provided alternative reconciliations of Adjusted EBITDA and Distributable Cash Flow that illustrate the impact of these items. These alternative reconciliations are also non-GAAP Measures. Management believes this information provides investors useful information regarding the impact of these items on our current results as well as the potential impact on future results.

Alternative distributable cash flow and alternative distribution coverage shown excludes the impact of cash flows from incremental barrels shipped on the Pony Express system, as incremental barrels shipped during current periods may reduce the shippers’ firm commitment in future periods under their firm, take-or-pay contracts, thereby potentially reducing cash flows in those corresponding future periods. Under this alternative calculation, the cash flows received from incremental barrel shipments would be shown in the future periods in which the incremental barrels are utilized to reduce the shippers’ firm commitment.

Segment reporting does not include corporate general and administrative costs or intersegment eliminations.

(2)

Net of noncontrolling interest.

(3)

Approximate average daily throughput for the year ended December 31, 2015, is reflective of the volumetric ramp up due to commercial in-service of the Pony Express System beginning in October 2014 and delays in the construction and expansion efforts of third-party pipelines with which Pony Express shares joint tariffs.

(4)

Represents the distributions TEP received from REX for the fourth quarter of 2016 and from May 6, 2016, the date of TEP’s acquisition, through December 31, 2016, respectively.

TEP acquired a 25 percent interest in REX effective May 6, 2016. TEP’s consolidated Adjusted EBITDA, as shown above, includes TEP’s 25 percent membership interest in REX. The table below is a reconciliation of REX’s Adjusted EBITDA and Distributable Cash Flow for the three months and year ended December 31, 2016 and 2015, presented to provide additional information on REX’s financial results.

Cash general and administrative expenses attributable to Tallgrass Equity

(500

)

(500

)

(2,000

)

(1,250

)

Cash available for distribution by Tallgrass Equity

44,008

27,322

158,068

71,879

Distributions to predecessor owners of pre-IPO available cash(2)

—

—

—

10,202

Distributions to Class A (TEGP)

16,116

8,257

50,359

18,613

Distributions to Class B (Exchange Right Holders)

27,515

18,944

106,085

42,707

Total cash distributions by Tallgrass Equity

$

43,631

$

27,201

$

156,444

$

71,522

TEGP

Distributions from Tallgrass Equity

$

16,116

$

8,257

$

50,359

$

18,613

Less:

Distributions to Class A shareholders

(16,116

)

(8,257

)

(50,359

)

(18,613

)

Amounts in excess of distributions

—

—

—

—

Distribution coverage

1.00

x

1.00

x

1.00

x

1.00

x

Class A shares outstanding

58,075

47,725

58,075

47,725

Distribution per Class A share

$

0.2775

$

0.1730

$

0.9950

$

0.3900

(1)

The three and twelve month periods ended December 31, 2016, and December 31, 2015, include distributions received by Tallgrass Equity from TEP’s distribution for the quarters ended December 31, 2016, and December 31, 2015, respectively.

(2)

Represents distributions received by Tallgrass Equity from TEP and Tallgrass MLP GP, LLC related to periods prior to the closing of TEGP’s initial public offering on May 12, 2015, which were paid to Tallgrass Development and the predecessor owners of Tallgrass Equity.

Annual Report

TEP and TEGP will file their 2016 Annual Reports on Form 10-K with the Securities and Exchange Commission (“SEC”) on February 15, 2017. A copy of the reports will be available for viewing through a link on the Tallgrass Energy website at www.tallgrassenergy.com or on the SEC’s website at www.sec.gov.

This release is intended to be a qualified notice to nominees and brokers under Treasury Regulation Sections 1.1446-4(b)(4) and (d). All of TEP’s distributions to foreign investors are attributable to income that is effectively connected with a United States trade or business. Accordingly, TEP’s distributions to foreign investors are subject to federal income tax withholding at the highest effective tax rate.

TEP’s Non-GAAP Measures

Adjusted EBITDA and Distributable Cash Flow are non-GAAP supplemental financial measures that TEP management and external users of our consolidated financial statements and financial statements of our subsidiaries and unconsolidated investments, such as industry analysts, investors, lenders and rating agencies, may use to assess:

• our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;

• the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;

• our ability to incur and service debt and fund capital expenditures; and

• the viability of acquisitions and other capital expenditure projects and the returns on investment of various expansion and growth opportunities.

We believe that the presentation of Adjusted EBITDA and Distributable Cash Flow provides useful information to investors in assessing our financial condition and results of operations. Adjusted EBITDA and Distributable Cash Flow should not be considered alternatives to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP, nor should Adjusted EBITDA and Distributable Cash Flow be considered alternatives to available cash, operating surplus, distributions of available cash from operating surplus or other definitions in our partnership agreement. Adjusted EBITDA and Distributable Cash Flow have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. Additionally, because Adjusted EBITDA and Distributable Cash Flow may be defined differently by other companies in our industry, our definition of Adjusted EBITDA and Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

We generally define Adjusted EBITDA as net income excluding the impact of interest, income taxes, depreciation and amortization, non-cash income or loss related to derivative instruments, non-cash long-term compensation expense, impairment losses, gains or losses on asset or business disposals or acquisitions, gains or losses on the repurchase, redemption or early retirement of debt, and earnings from unconsolidated investments, but including the impact of distributions from unconsolidated investments. We also use Distributable Cash Flow, which we generally define as Adjusted EBITDA, plus deficiency payments received from or utilized by our customers and preferred distributions received from Pony Express in excess of its distributable cash flow attributable to our net interest, less cash interest expense, maintenance capital expenditures, distributions to noncontrolling interests in excess of earnings allocated to noncontrolling interests, and certain cash reserves permitted by our partnership agreement. For a reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, please see “Summary Financial Information” above.

TEP is unable to project net cash provided by operating activities or net income attributable to partners to provide the related reconciliations of projected distributable cash flow or Adjusted EBITDA to the most comparable financial measures calculated in accordance with GAAP, because the impact of changes in operating assets and liabilities and the volume and timing of deficiency payments received and utilized from our customers are out of our control and cannot be reasonably predicted. TEP provides a range for the forecasts of Adjusted EBITDA and distributable cash flow to allow for the variability in the timing of cash receipts and disbursements, customer utilization of our assets, and maintenance capital spending and the impact on the related reconciling items, many of which interplay with each other. The timing of maintenance capital expenditures is volatile as it depends on weather, regulatory approvals, contractor availability, system performance and various other items. Therefore, the reconciliations of projected distributable cash flow and Adjusted EBITDA to projected net cash provided by operating activities and net income attributable to partners are not available without unreasonable effort.

Cautionary Note Concerning Forward-Looking Statements

Disclosures in this press release contain “forward-looking statements.” All statements, other than statements of historical facts, included in this press release that address activities, events or developments that management expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include TEP’s 2017 financial outlook and guidance, TEGP’s 2017 distribution outlook and guidance, the potential dropdown of an interest in Rockies Express Pipeline from Tallgrass Development, LP and Tallgrass Equity’s potential use of excess cash to reduce borrowings on its revolving line of credit. Forward looking statements may also include the expectations of plans, strategies, objectives and growth and anticipated financial and operational performance of TEP, TEGP and their subsidiaries, including: the ability to pursue expansions and other opportunities for incremental volumes; natural gas and crude oil production growth in TEP’s operating areas; expected future benefits of acquisitions or expansion projects; timing of anticipated spending on planned expenses and maintenance capital projects; and distribution rate and growth, including variability of quarterly distribution coverage. These statements are based on certain assumptions made by TEP and TEGP based on management’s experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of TEP and TEGP, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements.Contacts